Replies to post #74287 on Biotech Values

[DewDiligence]

Big Pharma Market Caps

If one counts AMGN and DNA as “Big Pharma,” the number of
Big Pharma will soon shrink by 20% from 15 companies to 12
companies. The 12 survivors* in descending order of pro-forma
market cap are:

 
            Pro Forma 
          Market Cap ($B) 
 Roche/DNA     153 
 PFE/WYE       144 
 JNJ           132 
 MRK/SGP        87 
 NVS            77 
 GSK            71 
 ABT            69 
 SNY            66 
 AMGN           49 
 AZN            45 
 BMY            39 
 LLY            32

*GILD and TEVA have market caps large enough to be
in this table, but I do not consider them “Big Pharma.”

[Preciouslife1]

Dew, I see this as the start of a new wave of "incubator" companies flowing out of DNA employees, whom now loaded
with buyout cash from stock will start up new biotechs in the Bay area...The free wheeling autonomy of DNA merged with
the stodginess of Roche will precipitate an outflow of the
free spirit talent at DNA imho.
The caveat to all that is the intellectual property
now belongs to Roche, and those testing the strength
of patents and proprietary intellectual property
could cause a new cottage industry in Basel and SF,
that being patent litigation and intellectual property and
no compete clause trials......gonna miss my DNA though...

Have an awesome day 2day,

PL1

[corpstrat]

DNA merger

http://www.nytimes.com/2009/03/13/business/worldbusiness/13drugs.html?pagewanted=2&hp

March 13, 2009
Roche Agrees to Buy Genentech for $46.8 Billion
By DAVID JOLLY and ANDREW POLLACK

Genentech, after eight months of resistance, agreed Thursday to be acquired by Roche for $95 a share, ending the independence of what is widely considered the world’s first and most successful biotechnology company.

For Genentech, the deal comes a few days after Roche, a Swiss pharmaceutical giant, raised its offer to $93 a share to buy the 44 percent of the company that it does not already own. At the new, higher price of $95, the companies said the deal would be valued at $46.8 billion.

Now attention will turn to whether Roche can retain the top managers and scientists who have made Genentech so successful in developing drugs like the cancer medicines Avastin and Herceptin, which had combined global sales of nearly $9 billion last year. If not, Roche could end up ruining the operation that has been providing it with its biggest-selling products.

That the deal was finally accepted on friendly terms could increase the chances that Genentech’s people will stay. Moreover, the job market is not good right now.

Franz B. Humer, Roche’s chairman, expressed hope for retaining Genentech’s culture and people. “I think we now have clarity and we can together march forward,” he said in an interview.

A system of retention bonuses put in place last summer after Roche’s takeover effort started remains in place until June. That gives Roche and Genentech time to consider new plans for retaining employees it wants to keep, even as it plans some layoffs.

But Laurence Lasky, a Silicon Valley venture capitalist who was a scientist at Genentech for 20 years, said he doubted that Genentech’s culture would be able to survive for long.

“They’re Swiss, and Genentech is a bunch of California entrepreneurial cowboys,” Mr. Lasky said.

“I think it’s quite sad,” he added. “This is one of the great jewels of American corporate technology.”

The deal represents the third major pharmaceutical combination this year.

On Monday, Merck, an American drug giant, said it would pay $41 billion to acquire Schering-Plough. In January, Pfizer, the world’s biggest drug maker, bid $68 billion for Wyeth.

In a smaller deal announced Thursday, Gilead Sciences said it would buy CV Therapeutics of Palo Alto, Calif., for $20 a share or $1.4 billion, gaining the rights to drugs for cardiovascular diseases. Gilead topped a hostile offer of $16 a share, or $1 billion, made by Astellas Pharma, a Japanese pharmaceutical company.

The price Roche has agreed to pay for Genentech is significantly higher than the $89 a share initially offered in July — and well above the $86.50 a share Roche subsequently bid in a hostile tender offer it started last month. But the deal price is less than the $112 a share that Genentech’s board committee had asked.

After Roche raised its offer to $93 a share last Friday, though, a special committee of Genentech directors entered negotiations, deciding that $112 a share was unrealistic, given the recent sharp declines in the stock market, according to a filing Genentech made to the Securities and Exchange Commission on Thursday. So the directors are now recommending that Genentech shareholders tender their shares at $95.

“We believe this is a fair offer for Genentech shareholders, and the committee is pleased to come to a successful conclusion of this process,” Dr. Charles A. Sanders, who headed the committee, said in a statement.

Sven Borho, a portfolio manager at OrbiMed Advisors, which owns more than three million Genentech shares, said that $95 a share was “fair for the large majority of shareholders.”

But Mr. Borho said that while he appreciated the return his company would make on its Genentech investment, he was saddened that the company would no longer exist independently.

“It’s a shame that the biotechnology industry loses its guiding light,” he said. “It’s a tremendous research organization, run by the best management team.”

Roche, based in Basel, Switzerland, has insisted that it will allow Genentech’s drug discovery and early-stage clinical trial activities to be run independently. Moreover, because Roche’s existing drugs will be marketed in the United States under the Genentech name, the brand will endure.

Many of Roche’s American workers will be asked to move from the company’s United States headquarters in Nutley, N.J., to South San Francisco, Calif., where Genentech is based.

Other workers in Nutley and South San Francisco are likely to lose their jobs, although executives would not say how large the layoffs would be. But layoffs are not expected in the sales forces.

Mr. Lasky, the venture capitalist, who is a friend of Genentech’s chief executive, Arthur D. Levinson, said he suspected Mr. Levinson and some other top managers would leave, although he said he did not have direct information.

“These people will be branch managers for Roche,” Mr. Lasky said Monday, when the deal seemed imminent. “After being what they were before, do they really want to do that?”

Mr. Humer of Roche said, “I sincerely hope that Art will stay.”

A Genentech spokeswoman said Thursday that the company’s executives had no comments beyond what was in the Genentech press release. In that release, Mr. Levinson said, “We look forward to working with our partners at Roche to ensure a smooth transition once the transaction is complete and to continue our mission of serving patients.”

Genentech was founded in 1976 by Robert A. Swanson, a young venture capitalist, and Herbert W. Boyer, a professor at the University of California, San Francisco. Dr. Boyer had helped develop the technique of gene splicing, and Genentech was the first company to capitalize on it, producing the first drug, human insulin, made in genetically engineered bacteria.

A key to the company’s success, Mr. Levinson has said, is to recruit top scientists who would typically work at universities. Genentech lets scientists explore their own interests during part of their working day and allows them to publish their work in scientific journals. Last year Genentech was awarded more patents in molecular biology than any other company, and even more than the United States government and the vast and vaunted University of California system.

Still, Genentech’s early history was blemished. On New Year’s Eve in 1978 two of its scientists visited a University of California, San Francisco, and walked off with vital samples — a matter the company paid $2 million the university to settle. Later, after Genentech developed a human growth hormone that the university said could not have been done without the stolen samples, the company agreed to pay an additional $200 million. In a separate scandal, the company agreed in 1999 to pay the government $50 million for marketing growth hormone for unapproved uses. More recently, Genentech has been criticized for the high prices of its cancer drugs, prices the company says are needed to nurture innovation.

Roche has owned a majority stake in Genentech since 1990, and the relationship has been considered a model for collaboration between a pharmaceutical giant and a biotechnology company. Roche provided money and marketing outside the United States for Genentech’s products. Genentech, in turn, developed or helped develop three cancer drugs — Avastin, Herceptin and Rituxan — that are now Roche’s biggest selling products.

Roche has said owning all of Genentech would improve coordination and reduce overlap. The deal also assures Roche marketing rights for new Genentech products after 2015, when an existing marketing agreement would expire.

Analysts have said that Roche wanted to wrap up the deal before the release of information next month from a clinical trial of Avastin.

That trial, testing Avastin as a treatment for colon cancer after surgery to remove tumors, could potentially open a huge new market for the drug, which is now approved to treat cancer only at a later stage. If Avastin worked in the trial, analysts had said Genentech’s shares could have risen to $100 or more, which would have made the deal more costly for Roche. If the drug does not work, analysts say, Genentech’s shares might fall below $70.

[corpstrat]

DNA - BW points out that DNA's latest drugs are not cost-effective and suggests that might crimp profits down the line. The Swissies will be well aware of that issue, since they market the drugs in more rational environments than here.

http://www.businessweek.com/technology/content/mar2009/tc20090312_235221.htm?campaign_id=yhoo

Pharmaceutical Industry March 12, 2009, 4:02PM EST text size: TT
Is Roche Buying Genentech's Ills?
Roche's $46.8 billion acquisition makes sense at first. But insurers may balk at covering some of Genentech's expensive new cancer drugs

By John Carey

After an eight-month struggle, drug giant Roche Holding is finally grabbing the slice of biotech pioneer Genentech (DNA) that it didn't already own. The $46.8 billion deal is crucial to Roche, analysts say. The biggest problem currently facing Big Pharma is a dearth of new drugs and potential new products in the pipeline. Genentech has both a portfolio of top-selling medications, like the cancer drugs Herceptin, Avastin, and Tarceva, and a promising pipeline.

But amid the general euphoria and the "buy" recommendations from analysts covering Roche, there are some potentially disturbing trends that raise questions about Genentech's value. The first is a push for "comparative effectiveness"—simply figuring out how drugs stack up against each other. Drugmakers typically don't do trials pitting their products against competitors', so there are limited data comparing drugs. When such trials have been done, however, the results have often been sobering for the pharmaceutical industry. The landmark "Antihypertensive and Lipid-Lowering Treatment to Prevent Heart Attack Trial" (ALLHAT) showed that cheap blood-pressure-lowering drugs in a class known as diuretics worked better than newer, more expensive calcium channel blockers and ACE inhibitors. Another trial found that older, cheaper schizophrenia drugs worked as well as or better than the newer, more costly ones.
Watching the Pennies

Payers have been quick to pounce on such results, changing their reimbursement policies to favor the cheaper, yet just as effective, drugs. And the Obama Administration is a big believer in comparative effectiveness as a means of delivering better quality, yet cheaper health care. President Obama's recent stimulus package includes $1.1 billion to perform drug-comparison trials, a measure that passed despite the objections of drugmakers.

Why is this relevant to Genentech and Roche? Because a big chunk of Genentech's sales come from its high-priced cancer drugs. In 2008, Avastin pulled in $2.7 billion of the company's total $9.5 billion in U.S. product sales. Tarceva added $457 million. But it's not yet clear how much medical value, in terms of longer lives for cancer patients, these drugs provide. It took several trials with Avastin in different cancers before enough benefit was shown to get approval from the Food & Drug Administration, for example. In advanced pancreatic cancer patients, Tarceva added only about two weeks of life compared with standard, inexpensive treatments.

Researchers and company executives had hoped that combining new drugs with different mechanisms of action would boost the effectiveness. But the second sobering trend, seen in the results of recent studies, is that the benefits remain small, at best.

In one trial, dubbed BeTa Lung, patients with advanced lung cancer were given Tarceva, which targets a growth factor receptor on cancer cells, either alone or in combination with Avastin, which interferes with the blood supply to tumors. The patients getting the combination did go for an average of one and two-thirds months longer without their tumors progressing than those just getting Tarceva. But those patients didn't live any longer. The trial "did not meet its primary endpoint of improving overall survival compared to Tarceva in combination with placebo," Genentech conceded late last year.
Mounting Pressure

The disappointing results are mirrored in other trials that combine these two types of cancer drugs. A trial sponsored by Amgen (AMGN) that tested Avastin with Amgen's own growth factor drug had to be stopped early, in April 2007, because of increased toxicity. A clinical study with Avastin and ImClone's growth factor drug that was published in 2007 showed no benefit in survival time.

Roche and Genentech are hoping that a more recent trial, called ATLAS, will show better results when the data are revealed later this year. In early February, Genentech announced that the trial, which added Tarceva to Avastin in advanced lung cancer patients, was stopped early because the combination increased the time patients lived without their disease progressing. The problem is that such "tumor-free progression" often does not translate into longer actual survival.

If the data from such trials continue to disappoint, the pressure will grow to scale back payments for expensive drugs like Avastin (which costs $50,000 per year) and Tarceva ($2,000 per month). Britain has a government body, the National Institute for Health & Clinical Excellence (NICE), that looks at comparative effectiveness of drugs. NICE recommended last year that the National Health Service not cover Tarceva. The recommendation forced Roche to cut the price in October 2008.

It's possible that doctors will figure out ways to use these drugs more effectively, extending the lives of cancer patients. But it's also possible that the data will continue to show that the benefits are small. And if that's the case, the push to make better use of health-care dollars by paying less for treatments that are shown to be less effective could be a serious threat to Genentech's bottom line. When asked about these trends and this potential threat, Genentech declined to comment.

Carey is a senior correspondent for BusinessWeek in Washington.